Over the past few weeks there has been a lot of discussion about socially responsible investing and socially responsible benchmarks.
What is the definition of socially responsible investing (SRI) which is often referred to as sustainable and ethical? Socially responsible investing is often described as representing companies that comply with global norms of corporate behavior. Sustainable investing means including environmental and social factors in investment decisions. Ethical investing is typically based on environmental, religious and/ or political views. SRI is not new as political, religious and moral values have helped to inform and direct where investors invest since the early days of investing.
SRI investing has traditionally been defined based on excluding industries and/or companies that violate norms, such as producers of alcohol, tobacco, firearms, pornography, gambling or companies involved in serious human rights abuses. Many investors mix these three main styles: socially responsible, sustainability and ethical into their investment process — by using negative screening, or selective screening investing in companies that promote environmental stewardship, consumer protection, human rights, and diversity.
Environmental, social and corporate governance (ESG) is increasingly being used as the overarching term to cover environmental, social justice, and corporate governance factors, which are measured to determine the sustainability, ethical impact, Socially Responsible Investment and promotes often promotes shareholder advocacy and community investing and not just negative or selective screening..
Including a company’s performance on ESG issues in the investment process is increasingly being seen as a fiduciary duty by many asset owners (pension funds, sovereign wealth funds, endowments etc) and these factors are becoming more correlated with a company’s financial performance.
As you can see from the above there are many different definitions and styles of socially responsible investing and with an array of benchmarks offered match these views. Historically supporting these views had meant that Investors were likely to underperform market cap benchmarks to support these views.
The first socially responsible ETF was launched in March 2002 by EasyETF which was 12 years after the first ETF was launched in Canada in 1990. At the end of April 2013 there were 43 ETF and ETPs with US$ 1.9 billion in assets under management providing exposure to socially responsible benchmarks. Only 5 of these ETFs and ETPs have gathered over US$100 million.
As you can see in the accompanying chart the majority of SRI ETFs and ETPs are listed in the United States and Europe and over half of the assets invested in SRI ETFs and ETPs are invested in the products listed in the United States. There are only 4 SRI ETFs and ETPs listed in Asia Pacific and one is listed in Japan.
SRI ETFs and ETPs represent less than 1% of global ETFs and ETPs based on both the number of products and assets under management. At the end of April 2013 there were 4,827 ETFs and ETPs, with 9,897 listings, assets of $2.13 trillion, from 209 providers listed on 56 exchanges according to figures from ETFGI’s Global ETF and ETP industry insights report for April 2013.
Socially responsible ETF and ETP asset growth since 2005
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